The U.S. markets are flying high this year, breaking all previous records. With the Fed finally deciding to clip the pace of the bond-buying program by $10 billion starting in January, volatility has taken a back seat for now. This indicates increased confidence in the U.S. economy’s growth rate and job outlook.
Further, Ben Bernanke seems committed to keep short-term interest rates near the zero level until the unemployment rate falls to 6.5% from the current 7% (and possibly longer). Low rates continue to encourage spending, hiring and lending.
With that being said, investors will continue to pour money into riskier assets such as equities, as a strengthening dollar will once again dull the appeal for safe avenues in 2014. While there are a number of choices available in the space across various asset classes, sectors and companies, it is always difficult to choose the best ones that will provide higher returns.
For making this process simple and easy, investors could follow the legendary billionaire and philanthropist Warren Buffett for the selection of sectors and stocks in their portfolio. Warren Buffett undoubtedly is the most successful investor in the world and made maximum profits from the surging stock market this year, according to the latest study by Wealth-X.
Warren Buffett’s equity stock portfolio is up nearly 27.3% to $59.1 billion in 2013 (as of December 11), which reflects a gain of $37 million per day. The returns are well above the S&P 500 benchmark gain of about 22% (read: 3 Sector ETFs Crushing the Market in 2013).
Going along the lines of Warren Buffett, investors can make more-than-expected money out of their investments in 2014 but with a lower level of risk. This can be easily done in the basket form that comes with low cost and enhanced returns by minimizing the overall comparable risks compared to an individual stock.
Below, we have highlighted three such ETFs from a variety of sectors that could be worthwhile for investors in the coming months that look to match some of Warren’s top sector selections:
iShares U.S. Financial Services ETF (NYSEARCA:IYG)
About two-fifths of the Buffett’s portfolio is inclined toward the financial sector with Wells Fargo (WFC) as the top firm, followed by US Bancorp (USB). Investors seeking to play this sector could find IYG an intriguing option. This fund provides exposure to the banks and financial service stocks by tracking the Dow Jones U.S. Financial Services Index.
Holding 109 securities, the fund is highly concentrated on the top 10 firms at 60% of total assets. WFC occupies the top position in the fund’s basket at 10.59% while USB takes the eighth spot with a 3.60% share. From a sector perspective, banks make up for 55% share while financial services take the remaining portion (read: Can Bank ETFs Bounce Back After Recent Downgrade?).
The product is relatively popular among investors with AUM of $602.9 million and average daily volume of roughly 74,000 shares. The ETF charges 45 bps in fees per year from investors and gained nearly 40% this year. IYG has a decent Zacks ETF Rank of 3 or ‘Hold’ rating with ‘Low’ risk outlook.